What is a Challenger Bank?

The UK banking industry is changing. Consumers have more choice than ever before, in terms of both financial products and institutions. Technology is also contributing to the shift in the way we bank, allowing us to be more connected more of the time. Online banking, contactless payments, and app-only banks mean we’re thinking about money differently way. So what exactly is a challenger bank?

With start-ups and smaller companies attempting to disrupt the big high-street banks, the term challenger bank is ever more relevant. We take a look at what exactly they are, and why you might consider one.

Challenger Bank – A Definition
The UK banking sector has long been dominated by the ‘big four’ banks; Barclays, HSBC, Lloyds Banking Group (including Halifax, Lloyds Bank and Bank of Scotland) and RBS (including NatWest and Ulster Bank). But advances in technology, along with a relax in regulations, means that smaller banks and financial institutions are able to challenge the established order.

Many of these challenger banks are branchless and based around mobile apps. They’re appealing to those looking for convenience and real-time updates on their finances. Many offer current accounts, while others also provide savings, loans, and even mortgages.

The Benefits of Challenger Banks
In a recent survey by Which?, challenger banks rated among the top institutions in the country, proving their appeal to consumers. There is a multitude of reasons for this, from their ease of use to their range of features. Below, we’ve highlighted some of the main benefits of choosing a challenger bank:

Convenience. Challenger banks such as Monzo and Starling are incredibly easy to use. To qualify for an account and get a card, all you need to do is download the app and complete the quick registration process. From there, you can manage your finances on the go, make contactless payments, and see how much you’ve spent.

Real-time updates. Every time you spend with your account, you will get a notification through the mobile app. Not only does this mean you can keep tabs on your daily and monthly spending, but it also means that you’ll immediately be aware of any fraudulent activity on your account.

Customer service. Although there are no bricks and mortar branches, many challenger banks will put an emphasis on customer service. 24/7 phone lines and in-app support are common, allowing you to address any issues as soon as they arise.

Of course, there are also downsides to this kind of banking. You lose the personal touch, may not get any bonuses for switching or signing up, and potentially won’t get rates as good as those from established banks.

Choosing the Right Challenger Bank
There is an increasing number of challenger banks coming to the market, making a it a difficult task to compile a definitive list of the ‘best’ ones. Firms such as Monzo, Starling, and Atom often top lists of satisfaction surveys, but it really depends on what you’re looking for. Compare Banks has an in-depth article comparing some of the best mobile-only banks, which is an excellent place to start.